Banks, S&Ls; Show Mixed 3rd Quarter : Financial institutions: Some firms report increased earnings because of acquisitions, while others see their profits fall because they put aside money for potential loan losses.

Major banks and savings and loans in the area escaped big losses in the quarter that ended Sept. 30, unlike some important banks nationwide. But, as a group, the local banks and S&Ls; turned in mixed performances.

Of the nine larger banks and S&Ls; in the region stretching from Ventura to Glendale, four reported an increase in quarterly profits, two reported profits after losing money a year ago and three reported a decline in earnings. None reported losses.

Usually results at financial institutions depend mostly on how they are affected by interest rates. But in the recent quarter the most notable declines and gains in profits depended on a variety of factors: Some institutions reported increased earnings because of acquisitions, while others saw their profits fall because they put aside money for potential loan losses.

Although recession fears abound nationwide, John Keating, chief executive of CU Bancorp, the Encino parent of California United Bank said, “I don’t see a recession now.”

Nevertheless, California United boosted its contribution to reserves for possible loan losses. As a result, the bank’s net income fell 22% to $1.2 million in the quarter, even while its assets grew 6% to $463.6 million. A loan-loss reserve is money a bank puts aside in case borrowers default on their loans.

By contributing $1.45 million to its loan-loss reserves this quarter, compared with $300,000 a year ago, California United increased its overall reserve to $4.79 million from $3.67 million a year before. But the change did not reflect an increase in problem loans. Non-performing loans--a category that includes real estate the bank repossessed, plus loans with payments past due--barely inched up, to $5.99 million from $5.96 million a year ago.

So why did Keating boost these reserves now? To be conservative, he said, in case the local economy really does slow down.

Banks and S&Ls; in the quarter saw prevailing interest rates fall slightly compared with a year ago. One measure of the decline is that the average overall interest rate paid by savings and loans in California, Arizona and Nevada on their savings accounts, certificates of deposit and other money they borrow fell from 8.81% in September, 1989, to 8.09% in September, 1990, according to the Federal Home Loan Bank of San Francisco.

But the decline was too small to be very important to banks. In general, banks are able to cope with changing rates because they can quickly lower the interest rate they pay on deposits if there is a decline in the interest rate they can charge on loans.

The largest bank in the region, Independence Bank in Encino, said its net income plunged 72% to $250,000 for the third quarter. But the bank’s assets grew 22% to $764.6 million on Sept. 30.

Independence’s chairman, Fulvio V. Dobrich, said profits fell because in the year-ago quarter the bank made no contribution to its loan-loss reserves, while this year it added about $1 million to those reserves in the latest period. Independence is privately owned, and Dobrich said it does not try to smooth out its results by making smaller, more regular additions to those reserves.

From June 30 to Sept. 30, Independence’s non-performing assets increased from about $30 million to about $39 million, but Dobrich said the increase was due to a single loan. And since the end of the quarter, he said, non-performing assets have actually dropped to below $30 million.

Independence’s addition to its loan-loss reserve meant the bank did not do well during the quarter according to one key measure of performance--return on average assets. The ROA is the annualized rate of profit a bank earns on its average assets, and a return of 1% is considered excellent. But Independence turned in an ROA of just 0.13% in the latest quarter.

Levy Bancorp, the Ventura parent of Bank of A. Levy, said its net income increased 30% to $2 million for the third quarter, giving the bank an impressive ROA of 1.32%. Levy’s assets grew 7% to $621.3 million as of Sept. 30.

Ventura County National Bancorp, the parent company of Ventura County National Bank and Frontier Bank, saw its assets bulge 65% to $400.9 million on Sept. 30. Meanwhile, Ventura’s third-quarter profit jumped 71% from a year ago to $1.4 million. Both increases were due mostly to the bank’s acquisition of Frontier in October, 1989, and to its acquisition of the deposits of Westco Savings Bank earlier this year. Ventura’s third-quarter ROA was 1.04%.

TransWorld Bancorp, the Sherman Oaks parent of TransWorld Bank, said its net income grew 13% to $620,000 for the third quarter, giving it an ROA of 1.13%. TransWorld’s assets grew 10% to $226.4 million on Sept. 30.

APSB Bancorp, the parent of American Pacific State Bank in Sherman Oaks, enjoyed a good quarter. APSB did increase its loan-loss reserves, although problem loans haven’t increased. But the bank’s earnings continued to be strong as net income grew 30% to $566,000 for the quarter, while its assets climbed 15% to $204.1 million on Sept. 30. APSB had an ROA of 1.14%.

“I’ve seen nothing related to recession yet,” said Frank J. Ures Jr., chief executive of the bank, which specializes in making loans to small businesses, under a program sponsored by the federal Small Business Administration.

The story was different for thrifts in the period. Unlike banks, S&Ls; lend most of their money in the form of adjustable-rate mortgages (ARMs) whose interest rates are sometimes adjusted only once or twice a year and so don’t keep up when rates are rising. Meanwhile S&Ls; have to pay higher rates to attract and keep deposits.

A year ago, such climbing interest rates were hurting S&Ls.; But thrifts are enjoying the benefits of a slight decline in rates this year, which took the squeeze off their profits.

For example, Citadel Holding Corp., the Glendale parent of Fidelity Federal Bank, said it had a profit of $4.9 million in the third quarter that ended Sept. 30 compared with a loss of $2.3 million a year before. Citadel’s assets climbed 14% to $5.63 billion, buoyed by the thrift’s acquisition in August of the deposits and certain assets of Westwood Savings & Loan and Investment Savings & Loan from the federal government. Nevertheless, Citadel’s ROA for the period was an unimpressive 0.36%.

Glenfed, parent of the region’s largest thrift, Glendale Federal Bank, said its profit fell 10% to $17.7 million in the period, its fiscal first quarter. Meanwhile Glenfed’s assets inched up 2% to $25.1 billion on Sept. 30.

Keith P. Russell Jr., Glenfed’s chief operating officer, said one of the main reasons for the profit performance was that Glenfed has all but stopped selling mortgages it writes to investors; as a result, Glenfed’s gains from loan sales, before taxes, dropped to $1.5 million in the recent quarter from $19.1 million a year before.

Meanwhile, Glenfed halved its quarterly dividend to shareholders, to 15 cents, to save about $5.4 million that the S&L; will use to boost its capital, which is the money a thrift must have as a cushion against possible losses.

Still, Glenfed said its net earnings from “continuing operations”--its basic loan-making business--climbed to $19.6 million for the first quarter from $15.6 million last year.

Even Valley Federal Savings, a Van Nuys thrift, earned a profit of $5.5 million for the quarter that ended Sept. 30 compared with a loss of $70.7 million a year before.

Valley Federal has been operating under the terms of a strict agreement with the federal Office of Thrift Supervision because its capital reserves do not meet federal standards. In reaching the agreement last spring, Valley Federal dodged the immediate threat of being seized by the federal government.

In the same quarter a year ago, most of Valley Federal’s loss came from writeoffs made in its All Valley Acceptance Co. subsidiary, which made loans on mobile homes. But Valley Federal also lost money then on its basic deposit-gathering and mortgage-lending business.

As of Sept. 30, the S&L; still had a deficit of $22.3 million in tangible capital--essentially its net worth minus the value of some non-cash assets. Valley Federal said its earnings so far this year were slightly better than what the government’s plan requires. And the S&L; has shrunk in size, as is called for under the plan, by about 14% to $2.72 billion in assets as of Sept. 30.

QUARTERLY REPORT FROM THE REGION’S LARGEST FINANCIAL INSTITUTIONS

Assets Sept. 30 Change from Profit Change from Banks (millions) Year ago (Loss) Year ago Independence Bank $764.6 +22% $250,000 -72% Levy Bancorp $621.3 +7% $2.0 +30% (parent of million Bank of A. Levy) CU Bancorp $463.6 +6% $1.2 -22% (parent of million California United Bank) Ventura Co. $400.9 +65% $1.4 +71% Natl. Bancorp million (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp $226.4 +10% $620,000 +13% (parent of TransWorld Bank) APSB Bancorp $204.1 +15% $566,000 +30% (parent of American Pacific State Bank) Savings & Loans Glenfed* $25,117.6 +2% $17.7 -10% (parent of million Glendale Federal Bank) Citadel Holding Corp. $5,632.2 +14% $4.9 NA (parent of Fidel- million ity Federal Bank) Valley Federal $2,720.7 -14% $5.5 NA million

Return on Average Banks Assets Independence Bank 0.13% Levy Bancorp 1.32% (parent of Bank of A. Levy) CU Bancorp 1.00% (parent of California United Bank) Ventura Co. 1.04% Natl. Bancorp (parent of Ventura County National Bank and Frontier Bank) TransWorld Bancorp 1.13% (parent of TransWorld Bank) APSB Bancorp 1.14% (parent of American Pacific State Bank) Savings & Loans Glenfed* 0.28% (parent of Glendale Federal Bank) Citadel Holding Corp. 0.36% (parent of Fidel- ity Federal Bank) Valley Federal 0.78%

* Fiscal 1st quarter ended Sept. 30 NA: Not applicable for comparison due to current or year-earlier losses.